Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : HANNOVER, GERMANY
Tarikh/Date : 19/03/98
Tajuk/Title : THE MALAYSIA-GERMAN BUSINESS FORUM
Southeast Asia After the Economic Crisis
- Future Challenges and Prospects
1. Firstly, I would like to say how delighted I am
to be here today in Hannover to address this gathering of
prominent members of the German business community. I
have been given the honour to speak on the future
challenges and prospects of Southeast Asia after the
economic crisis. The focus on the future is certainly
appropriate. Whatever may have happened to us in the
past, whatever may assail us now, the future is really
where all of us will be spending the rest of our lives.
But to foresee the future, to plan for the future, we
need to look back and learn from the past and understand
and manage our present.
2. During the period the peoples of Southeast Asia were
subservient to their colonial masters, their role was to
produce raw materials for export to the metropolitan
countries and to be a captive market for the latter's
industrial goods. They were not allowed to industrialise
and to compete with their colonisers. They were also not
allowed to trade with the neighbouring colonies belonging
to different powers.
3. Some forty years ago the countries of Southeast Asia
gained independence. They soon realised that the
independence was nominal. They were all still dependent
on foreigners, mainly European for all their manufactured
goods. They continued to produce the raw materials that
they used to produce under colonial rule. However the
terms of trade deteriorated. They had to export more and
more raw materials in order to buy less and less of the
manufactured goods they needed.
4. Naturally they became poorer, especially as their
population was multiplying rapidly.
5. It looked like they were to continue to be client
states, the receivers of aid forever. Mostly their
Governments were incompetent and their administration
chaotic.
6. Then some thirty years ago the independent countries
of Southeast Asia began to change. Whatever may be the
type of Government and administration they formulated,
they all seemed to want to develop their countries.
Instead of political ideologies and narrow nationalism,
which had characterised the early years of their
independence, they opted instead for development and the
improvement of the life of their people.
7. They accepted elements of the market economy and
laid the welcome mats for foreign investors. They strove
to improve their administration, to introduce new
economic policies, to provide incentives for foreign
investment etc.
8. Slowly at first, but speeding up with the passage of
time, these poor ex-colonies began to develop. Jobs were
created, new skills introduced and poverty gradually
reduced. Lacking management skills and technical know-
how they accepted foreign industrial investments.
Starting with simple processes they graduated to more
sophisticated technologies. Soon they were producing the
latest manufactured products for the world markets. And
their products competed successfully against the same
products from the developed countries.
9. By the late eighties and early nineties they had
become a credible competitor in the world market. They
had emerged as the Tiger economies. They were not yet
classified as newly-industrialising countries but it was
clear that they were heading that way. Indeed they
announced their target to become developed countries.
There was even wild talk that together with the faster
growing Northeast Asian countries they were going to
dominate the world, they were going to make the 21st
century the Asian Century. Carelessly and arrogantly
they talked of Asian values. They claimed that Asian
values were superior to Western values, and that these
values had contributed towards the success of their
economies.
10. The Governments of these countries were far from
being the ideal as conceived by the West. The most
successful of them had long serving leaders whose
influence and authority was palpable. They tended to
work closely with the business leaders in their
countries. This resulted in huge corporations emerging
which were comparable with the older giant business
establishments of the developed world. They went into
every field of trade and industry. And they all seemed
to succeed rather remarkably.
11. It looked like these former poverty-stricken ex-
colonies were going to gallop ahead and achieve their
ambition to become developed countries and to realise the
Asian century. Then suddenly they began to stumble and
to totter, to shrink visibly and to collapse. Within
months the economic wealth they had created began to
disappear. Their banks and industries folded up, their
workers thrown out of jobs by the millions, while those
who still worked earned only a fraction of their old
purchasing capacity.
12. Their Governments, the very same Governments which
had engineered their so-called economic miracle, were
suddenly found to be incompetent, corrupt and given to
crony-capitalism. The policies and strategies they had
developed which had apparently contributed towards their
rapid growth and general wealth, were suddenly found to
be the cause of their downfall. The foreign investors
lost confidence in their economy and began to pull out
taking their capital and their profits with them.
13. It is strange that the same Governments by the same
leaders with the same strategies and practices which had
for thirty years created the so-called economic miracles
are now causing economic collapse, massive unemployment
and poverty, and social and political unrest. Can it be
that something which worked in the 1980's and early
nineties should fail because it is 1997? Nothing else
had changed except the time.
14. One would be able to understand if in July 1997 the
Government changed and new policies were introduced. One
would understand if suddenly a number of madmen took over
the leadership of these Southeast Asian countries. We
have seen radical changes take place when the leadership
of Governments change as for example when Hitler became
the Chancellor of Germany.
15. But in Southeast Asia there was no change of
Governments or leaders or policies or the system or
ideology either gradually or suddenly. Yet within less
than a month the tigers of Southeast Asia were reduced to
whimpering bedraggled kittens ingloriously begging for
help. Gone were the pride and the ambition about
becoming developed, about Asian domination and the Asian
century.
16. Something happened, something must have happened.
One day a great historian will study this mystery and
will write on the Rise and Fall of the Great Asian
Tigers.
17. I am sure the historian will have very important
lessons for us based on hindsight. But unfortunately we
cannot wait for this erudite work. We have to work to
recover now. People, millions of them are already
suffering from food shortages, from lack of medicine,
from uncertainties about what is going to happen to them.
We need action now.
18. Having reviewed the past, and having noted the state
of the present, we have now to look at the future, to try
to create a future that will be better than the present
of course, but somehow different if we are not going to
have this kind of crisis repeatedly.
19. There are several courses open to us. Firstly we
can follow unquestioningly the advice given us to
integrate fully into the globalised world economy. For
quite some years since independence we had tended to
protect our economy. Some of us believed that we should
keep our markets to ourselves. This we did through
tariff and non-tariff barriers.
20. By the simple imposition of differential tariffs on
imported and locally produced goods we had been able
to persuade foreign investors to locate their production
facilities in our country if they wish to have access to
our domestic markets. Additionally as an incentive we
gave tax-free status for foreign manufacturers producing
for export.
21. The strategy enabled us to industrialise, to
increase exports and the revenue of the Government. So
successful was this strategy that even a sophisticated
automotive industry could be nurtured. Because of the
high duty on imported cars, and lower duties on locally
assembled cars, automotive assembly plants became viable.
Through the same mechanism the so-called national cars
became feasible and profitable.
22. Perhaps the strategy can be interpreted as
subsidising both foreign and local companies. But
developed countries too offer almost similar subsidies.
It is not unusual for Governments or municipalities in
developed countries to offer land free or at nominal cost
and even to provide a substantial part of the capital to
foreign companies investing in job-creating enterprises.
What the developing countries of Southeast Asia were
doing was not so unusual.
23. When socialism was popular Governments believed that
the state should go into business and take all the
profits instead of just the corporate tax. After years
of state ownerships of the means of production it was
finally admitted that they were inefficient, wasteful
and unprofitable. Private ownership and management was
considered to be the answer to the failure of state
ownership.
24. And so privatisation became popular. Successful
private companies were allowed to bid for the takeover of
Government companies and public utilities and to go into
major industries. But the Governments could not just
wash their hands from their responsibilities to the
public.
25. Although the utilities now belong to the private
sector, Government continues to collect taxes of all
kinds. The Government is therefore obliged to continue
to support the people through some form of direct or
indirect subsidy. The objective is to reduce the cost to
the users and to render the privatised entities viable.
26. Whether there are two or two thousand bidders for
the privatisation of any entity there can only be one
winner. No matter who becomes the winner he is
immediately labelled as a crony. Hence "crony
capitalism" was coined and labelled as an abuse of
Government authority.
27. The fact that many Governments of developed
countries promote certain companies by diplomatically or
otherwise influencing the decisions on contracts and
supplies by the Governments of developing countries is
not regarded as "crony-capitalism". In the purchase of
arms for example Governments of the arms supplier often
provide loans to countries in order to influence their
decisions and enable them to buy what they really cannot
afford. But these are for some reason not considered
crony-capitalism.
28. Whatever may be the merits and the results of the
strategies and policies followed by the countries of
Southeast Asia, the fact is that they are not going to be
allowed to continue with them. They are now required to
accept globalisation, liberalisation and deregulation.
29. We in Southeast Asia are ready to open up our
countries to the free flow of capital across borders. We
agree that there should be little or no discrimination
against foreign companies and goods through differential
duties. We also agree, in the interest of greater
efficiency and the reduction of prices for our people,
that 100 percent foreign-owned banks and companies should
be allowed free access to our countries.
30. It is recognised that all this would contribute
towards the rapid development of our countries. Keeping
the domestic markets closed will only result in the
people being burdened with high-cost poor quality goods
and services.
31. However the free access of tax-free foreign products
is likely to reduce investment in our countries. Our
workers will not be able to get employment especially if
the levelling of the playing field involves levelling the
wages of workers worldwide. Government revenues are
likely to decrease, economic growth stunted and
eradication of poverty slowed.
32. In order for a borderless unregulated world to be
meaningful our jobless workers must be allowed to move
across borders freely. Their skills and their
willingness to work hard are as valuable as the
management and technological skill of the people from the
developed countries. They can contribute to lowering
costs and increasing productivity in the developed
countries.
33. We are of course already seeing this migration of
workers from the developing to the developed world. That
they have contributed towards the economies of their new
domiciles cannot be denied. In fact if migrant workers
are all repatriated the economy of many developed
countries is likely to collapse.
34. Malaysia has a wide experience of playing host to
immigrants. In fact almost half of our population is of
immigrant origin. They have contributed greatly to our
economy. But we cannot afford to have too many migrants
in our country. To reduce unwanted immigration we invest
and create jobs in the countries where the workforce is
not fully engaged. But today because of currency
devaluation there is widespread poverty in many Asian
countries. We hope that in a borderless globalised world
these workers can cross borders freely to look for work.
35. For the countries of Southeast Asia with a
population of half-a-billion, one solution to their
present problem could be greater deregulation,
liberalisation and globalisation. It should result in
higher standards of living for the reduced population
after the out-migration of their workforce. The foreign
investors on the other hand should be allowed to settle
in their countries, thus making their skills and capital
indigenous.
36. Alternatively Asia can become more Asian. To
resolve the problems of currency devaluation and shortage
of dollars they may have to devise a new form of barter
trading. The members of the Association of Southeast
Asian Nations have already decided to trade with each
other in their own currencies.
37. Obviously there will be difficulties as their
currencies are very volatile. But it has been noticed
that they devalue by roughly the same rate. In other
words the exchange rates between them are roughly the
same. This reduces the risks of exchange rate
fluctuation between them.
38. It is entirely possible for the trade between two
countries to be settled without having to pay for every
transaction. Thus at the end of the day the imports and
exports between two countries can be totalled up and only
the balance is paid to the country with a higher export.
The rest of the payment is made in local currency between
the exporters and importers of each country. This will
eliminate the need for large holdings of the currencies
of the trading partners. It will certainly do away with
the need to buy the currency of a third country in order
to settle the payment.
39. Effectively this is bartering. The arrangement can
be extended into multilateral trading in which a payment
is made after all the balances in the trade have been
accounted for.
40. With computers a modern clearing house can be set up
which can actually follow the trade and make the
necessary payment on the same day. This will reduce the
impact of exchange rate fluctuations.
41. The system can actually be extended beyond the
Southeast Asian nations. Already talks are being held
for trade with the North East Asian countries in each
other's currencies. No third currency will be needed.
The value of the goods will be determined through a
willing buyer and willing seller mechanism. Thus if the
currency of one partner appreciates then the other
partner will have to use more of its own currency in
order to buy. But at the same time it can be assured
that when it is selling in its own currency it will get
more.
42. When the imports and exports of the two countries
are tallied, it will not matter whether these currencies
have appreciated or depreciated. The figures may change
but the value of the goods or services will remain. If
subsequently the exchange rates change again, the value
of the goods will still not change. Besides, the risks
of currency fluctuations are shared by both parties.
43. It is wrongly assumed that devaluation of a currency
results in cheaper goods for export. This does not
always happen because everything that is exported has
some imported contents is now more costly. Besides a
country with a devalued currency must experience
inflation for a number of different reasons. Then buyers
from other countries would demand that prices be reduced
because they assumed the cost of production had gone down
due to devaluation. In the end the country with the
devalued currency gains nothing at all.
44. In the present case because all the countries of
Southeast Asia have had their currencies devalued, none
has gained any competitive advantage. Their exports will
not grow. Their earnings may even shrink. Devaluation
is far from being an economic blessing.
45. There is therefore some merit in Asian countries
promoting intra-Asian trade in their own currencies.
46. There is a third route that the countries of
Southeast Asia can take and that is to go back to the
system that had brought prosperity to them. Adjustment
will have to be made of course. But certain protective
barriers can be retained. The likelihood is that strong
pressures will be brought to bear upon them. Those who
have accepted IMF conditions will not be able to do this.
47. The banking sector is a good example. The
indigenous banks of these countries are still too small.
If foreign giants are allowed in unrestricted, the local
banks would not be able to compete. Foreign banks can
afford to lose in the country, local banks cannot.
48. But if the local banks are given time to merge, to
acquire expertise, they can become strong enough to
withstand the onslaught of the giant foreign banks. If
at that time the foreign banks are allowed in, the local
banks may be able to survive.
49. This third approach to the management of the economy
of the Southeast Asian countries will be sufficient to
cater to a mild degree of nationalism, a desire to
preserve national identity and pride. Perhaps in a
globalised world this kind of nationalism is
anachronistic. It is perhaps better if we all forget our
race or nationality in favour of giving our people
unlimited access to the best and the cheapest of goods
and services. There is no doubt that if the giant
corporations from the most developed and advanced
countries are allowed free access, the people in the
developing countries will not only get the best goods and
services but they would be freed from their corrupt
governments. But people are perverse. They might prefer
their own products and services inefficient and inferior
though these may be.
50. Maybe the third choice is not compatible with a
globalised deregulated world. But it may be less
disruptive and may reduce migration and the problems
these can cause the developed world. We should therefore
not dismiss this alternative.
51. Whatever may be their choice, the road back for the
Southeast Asian nations will be long and painful. Damage
has been done, perhaps irreparable damage. In the name
of justice and fairness Southeast Asia should at least be
allowed to choose its own way back.
52. The recent slight strengthening of their currencies
and share prices indicate that they have the capacity to
bring back confidence. Provided that there is some
stability in terms of exchange rates they can make their
choice of the route for a come-back. I am sure that
when they do they will recover and contribute to the well-
being of the world.
53. In the meantime they need help in the form of
foreign long term investments. With their currency so
cheap it is the time to invest. The cost of construction
is low in terms of foreign currency. So are the
companies and properties which are in trouble and are up
for sale. There may still be some restrictions but the
Southeast Asians have learnt their lessons. They now
know what is good for them and knowing this they will be
able to face the challenges of the future, whatever they
may be.
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